The rise and rise of the Japanese currency has sparked speculation whether the central bank will intervene to bring an end to the yen’s exponential rise.
Yen Surges As Bank of Japan Maintains Monetary Policy
Following a two-day review of the monetary policy, the BOJ indicated that it would continue to undertake operations in the money market in an effort to increase the monetary base at a rate of 80 trillion yen (760 billion) annually while maintaining a negative interest rate of -0.1 percent.
Although the markets had strongly anticipated the BOJ’s decision, the yen showed a strong performance against the dollar by 1 percent, getting to its highest value of 104.5 in 21 months.
So far, the yen has rallied up to 13.5 percent against the dollar, increasing the strain on export-focused firms on the benchmark equity index in Japan.
Martin Lakos, division director at Macquarie noted that it is interesting to see the large market movements based on flat decisions offered by the BOJ.
In the event that these market swings continue, interventions from policymakers will be necessary.
Mitul Kotecha who heads the Asia FXb and rates strategy at Barclays said, ‘Policymakers typically spend a greater amount of time assessing the equity market than they do the yen and if it has adverse effects on stock, the risk of intervention increases.”
Prior to the central bank’s decision, HSBC pointed out that policy inaction on the part of the BOJ could lead to currency gains and this was an unwanted situation.
In case the BOJ had refrained from stimulating the Yen on Thursday, the rise of the yen could have affected market confidence in the Bank’s commitment to boost inflation, which could probably strengthen the currency but this could have complicated the BOJ’s job even further, noted Izumi Devalier, an HSBC economist.
She further noted, “The longer the board waits to tackle the risk and price to the economy, the more the markets will be doubtful of the Bank’s commitment to its inflation target.”